Perrigo Company today announced results for its fourth quarter and full year ended June 27, 2009.
Perrigo's Chairman and CEO Joseph C. Papa commented, "Our sales topped $2 billion for the first time in our history. For the third straight year, we delivered year-over-year record sales and for the second straight year, we translated our top line growth to record earnings and cash flow from operations. In the fourth quarter alone we generated $157 million in operating cash flow. Our team is executing well -- growing market share, managing our supply chain, improving customer service levels, investing in quality and delivering strong returns. By bringing innovative new products to market today and continuing to invest in research and development for future launches, we continue to make quality healthcare more affordable at a time when consumers need to save money more than ever."
Papa continued, "We are also very pleased to announce the next phase in the evolution of our API business. In an effort to strengthen our position in an important and strategic segment of our business, on August 6, 2009, we acquired an 85% stake in a state-of-the-art API manufacturing facility outside of Mumbai, India for $12 million. By the middle of fiscal 2011, we expect this new facility to be on-line and to begin production of certain API products manufactured today in Germany and Israel. We also expect this facility to manufacture certain specialty APIs, as well as allow for the vertical integration of Rx and future candidate Rx-to-OTC switch products. This transition to India will enable us to leverage the capacity created in Israel for other specialty API products. We are also exiting our German manufacturing facility by the first quarter of 2011. This transformation will position Perrigo to be more competitive in the medium and long-term and allow for further growth opportunities."
In connection with the closure of the German facility (which was part of the 2005 Agis acquisition), the Company incurred restructuring charges of approximately $15 million. Refer to Table II at the end of this press release for adjustments in the current year and prior year periods and additional non-GAAP disclosure information.
The Company's reported results are summarized in the attached Consolidated Statements of Income, Balance Sheets and Statements of Cash Flows. As part of management's strategic review of its portfolio of businesses, in March 2009, the Company committed to a plan to sell its Israel Consumer Products business. The results of this business are reflected in the consolidated financial statements as discontinued operations for all periods presented.
Fourth Quarter Results
Net sales from continuing operations for the fourth quarter of fiscal 2009 were $508 million, an increase of 7%. Reported income from continuing operations was $32 million, or $0.35 per share, relatively flat compared with $32 million, or $0.34 per share, a year ago. Excluding charges as outlined in Table II at the end of this release, fourth quarter fiscal 2009 adjusted income from continuing operations was $47 million, or $0.50 per share.
Fiscal Year Results
Net sales from continuing operations for fiscal 2009 were $2,007 million, an increase of 16% over fiscal 2008. The year-over-year increase was driven by $214 million of incremental consolidated new product sales. Adjusted operating income of $267 million was an increase of 24% over fiscal 2008, and adjusted consolidated operating margin improved 80 basis points to 13.3%. Reported income from continuing operations was $141 million, relatively unchanged from fiscal 2008, while adjusted income from continuing operations of $175 million was a 13% increase from fiscal 2008.
Consumer Healthcare segment net sales in the fourth quarter were $407 million compared with $375 million in the fourth quarter last year, an increase of $32 million or 9%. The increase resulted from approximately $33 million of sales from the acquisitions of JB Labs, Unico, Diba and Brunel, and $28 million from incremental sales of new and existing products. These increases were partially offset by the impact of unfavorable changes in foreign currency exchange rates of $15 million and $14 million from divestitures and discontinued products, respectively. Reported operating income was $56 million, compared with $52 million a year ago, largely driven by increased sales and the absence of a $3 million charge to cost of sales related to the step-up in value of inventory acquired in the Galpharm acquisition and $2 million related to restructuring in the U.K. On an adjusted basis, operating income was relatively consistent with last year at $56 million compared to $57 million in fiscal 2008. Adjusted operating margin decreased 140 basis points year-over-year for the quarter due to lower gross margins and increased R&D spending.
For the full year of fiscal 2009, Consumer Healthcare net sales increased 23% or $303 million compared to fiscal 2008. The increase resulted from a combination of sales of new and existing products of approximately $233 million. The increase was also driven by $140 million of sales from the acquisitions of JB Labs, Unico, Galpharm, Brunel and Diba. These combined increases were partially offset by the impact of unfavorable changes in foreign currency exchange rates of $37 million and the absence of the U.K.'s vitamins, minerals and supplements business's sales of $35 million. Reported operating income was $234 million, compared with $173 million a year ago, largely driven by increased sales. On an adjusted basis, operating income was $239 million compared to $181 million in fiscal 2008. Adjusted operating margin increased 110 basis points year-over-year due to improved product mix and cost management.
On July 13, 2009, the Company announced that it had received approval from the U.S. Food and Drug Administration (FDA) to market over-the-counter (OTC) coated nicotine polacrilex lozenge USP, 2 mg and 4 mg in cherry and cinnamon flavors.
The Rx Pharmaceutical segment fourth quarter net sales were $49 million compared with $38 million a year ago, an increase of 27%. The increase in sales was driven by increased volume on existing products, strong base business performance and strategic pricing initiatives. Adjusted operating income was $12 million an increase of $8 million from last year due to strong gross margins and strong cost management.
For the full year of fiscal 2009, net sales for the Rx Pharmaceutical segment increased 2% from fiscal 2008 to $164 million. The increase was due primarily to new product sales of approximately $17 million, along with an increase in sales volumes on the Company's existing portfolio of products of approximately $9 million. The increases were partially offset by the absence of the fiscal 2008 receipt of a one-time cash payment of $9 million from a customer in lieu of expected future minimum royalty payments, as well as a reduction in non-product revenue of $6 million and pricing pressures due to continued competition in the marketplace for generic drugs.
The API segment reported fourth quarter net sales of $39 million compared with $38 million a year ago. The increase was due primarily to improved product mix and was partially offset by $3 million in unfavorable changes in foreign currency exchange rates. Adjusted operating income increased $5 million or 146% due to improved sales mix, operational efficiencies and cost management.
For the full year of fiscal 2009, net sales decreased 9% compared to fiscal 2008. This decrease was due primarily to a decline of approximately $9 million in sales of existing products, the absence of a one-time $5 million accrual reversal and approximately $4 million resulting from unfavorable changes in foreign currency exchange rates. This decrease was partially offset by new product sales of approximately $5 million. Adjusted operating income was $15 million down from $20 million.
Continuing operations for the Other category, consisting of the Israel Pharmaceutical and Diagnostic Products operating segment, reported fourth quarter net sales of $13 million, compared with $23 million a year ago. The decrease was due to the change whereby the Company is now a distributor to a customer rather than a supplier to that customer and also by unfavorable changes in foreign currency exchange rates. Operating income was $2 million, up from $800 thousand last year. The increase in operating income was due primarily to effective cost management and favorable currency exchange rates.
For the full year of fiscal 2009, net sales decreased $15 million or 18%, compared to fiscal 2008. The decrease was driven primarily by a $12 million impact related to the change in a customer contract relationship mentioned above. In addition, sales decreased by approximately $3 million due to changes in the sales mix of products.
Chairman and CEO Joseph C. Papa concluded, "In challenging economic times, Perrigo is uniquely positioned to continue to save consumers nearly a billion dollars annually on their healthcare spend while adding value for our customers and shareholders. We expect fiscal 2010 earnings from continuing operations to be between $2.00 and $2.12 per share, which implies a year-over-year growth rate of earnings from continuing operations of 7% to 13% over adjusted fiscal 2009 EPS. Perrigo is the right company in the right place at the right time."
Perrigo will host a conference call to discuss fiscal 2009 fourth quarter and full year results at 10:00 a.m. (ET) on Tuesday, August 18. The conference call will be available live via webcast to interested parties on the Perrigo website http://www.perrigo.com or by phone 877-248-9413, International 973-582-2737 and reference ID# 20224149. A taped replay of the call will be available beginning at approximately 2:00 p.m. (ET) Tuesday, August 18, until midnight Tuesday, August 25, 2009. To listen to the replay, call 800-642-1687, International 706-645-9291, access code 20224149.
Perrigo Company is a leading global healthcare supplier that develops, manufactures and distributes OTC and generic prescription pharmaceuticals, nutritional products, active pharmaceutical ingredients (API) and pharmaceutical and medical diagnostic products. The Company is the world's largest manufacturer of OTC pharmaceutical products for the store brand market. The Company's primary markets and locations of manufacturing and logistics operations are the United States, Israel, Mexico and the United Kingdom. Visit Perrigo on the Internet (http://www.perrigo.com).
Note: Certain statements in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Company or its industry to be materially different from those expressed or implied by any forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or other comparable terminology. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company's control. These and other important factors, including those discussed under "Risk Factors" in the Company's Form 10-K for the year ended June 27, 2009, as well as the Company's subsequent filings with the Securities and Exchange Commission, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this press release are made only as of the date hereof, and unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.